Parliament approves bill to levy excise duty on tobacco

New Delhi: Parliament on Thursday approved a bill to levy a higher excise duty on tobacco and related products once the GST compensation cess ends, with the Rajya Sabha returning the legislation to Lok Sabha.

Lok Sabha had passed the Central Excise (Amendment) Bill, 2025, on Wednesday.

Replying to a discussion on the bill in Rajya Sabha, Finance Minister Nirmala Sitharaman spoke on the various aspects of the legislation, and responded to questions from various members.

Sitharaman also told the House that farmers are being encouraged to give up tobacco and grow other cash crops.

"This is being done in Andhra, Bihar, Karnataka, Madhya Pradesh, Maharashtra, Odisha, Tamil Nadu, Telangana, UP, and West Bengal. In these states, more than 1 lakh acres of land are shifting from tobacco cultivation to other crops," she said.

She also assured that tobacco products will still be taxed under the demerit category at 40 per cent in the GST regime.

Later, the bill was returned to Lok Sabha by a voice vote.

The Bill, once enacted, will give the government the fiscal space to increase the rate of central excise duty on tobacco and related products after GST compensation cess, which is currently levied on all tobacco products like cigarettes, chewing tobacco, cigars, hookah, zarda, and scented tobacco, ceases to exist.

Currently, a 28 per cent Goods and Services Tax (GST) plus cess at a varied rate is levied on tobacco and related products.

The bill proposes to levy an excise duty of 60-70 per cent on unmanufactured tobacco. Excise on cigars and cheroots is proposed at 25 per cent or Rs 5,000 per 1,000 sticks, whichever is higher.

Cigarettes, depending on length and filter, are proposed to be taxed in the range of Rs 2,700-11,000 per 1,000 sticks, while chewing tobacco is taxed at Rs 100 per kg.